Business Planning Tip – Finding Your Critical Number
As a Business Coach I have created and reviewed hundreds of annual business plans. I find that many companies do a poor job of creating their plans, seriously diminishing their growth in revenue and profits. On the surface, these plans look like they have the right ingredients for success. However, after a closer look shows that the leaders inadvertently led themselves astray.
As many of you know, I am a certified Gazelles coach, As such, I help clients implement the concepts found in “Scaling Up”” by Verne Harnish. The key tool that everyone looks forward to using in our annual planning process is the “One-Page Plan”. Whether your company uses this business planning tool or others, the issues you must consider are the same. Only the presentation of the business plan is different.
At the bottom of the “one-year plan” column of the “One-Page Plan” is the “Critical Number” section. I have found that selecting the annual “Critical Number” may be the single most important decision in the annual planning process. In order to focus your organization, it is essential to pick the one or two critical numbers that must be achieved to drive all of the other desired outcomes in your annual business plan. If you are not sure which critical numbers to select, you’ll find some clues by asking yourself questions like:
- What is the key weakness in your business model?
- What is the biggest weakness in your operations?
- What is causing you not to gain customers?
- What is causing you to lose customers?
- What is causing your cost structure to be out of line with that of your competition?
The most common number clients want to use is revenue. This is not a good choice for a Critical Number. If growth is an issue, you need to go deeper and find the leading indicator at the root of that problem. For example, are you not able to generate enough leads? Do you generate enough quality leads?
Once you have found what you think is the most important Critical Number, you need to ask the question, “If we focus too much on this critical number, what could go wrong in the company?” If the answer is nothing, then you only need that one Critical Number. However, if you find that by focusing so much on that number you will hurt another area of business, you will want to balance the first critical number with a second so you do not unintentionally hurt the company.
As with all plans, we recommend that there be no more than five annual initiatives. Once you have your Critical Numbers, you can determine what the most important initiatives are to undertake. A good rule of thumb is for three or four of those five annual initiatives to focus on addressing your critical number(s). If it does not take at least two or three, you have probably not challenged yourself enough in finding the right critical number or are not focusing on the right annual priorities.
As an executive and business coach, I can provide you with practical business solutions to accelerate your business growth. Once you have completed your business plan, ask the following to questions to determine whether or not your job is done:
- Have you identified the one or two Critical Numbers that will improve next year’s results, and what is the measure that tells you that you’ve succeeded?
- If you complete your annual initiatives, how confident are you that you will have achieved number 1?
To learn how to improve your growth potential, contact Howard Shore at (305) 722-7216.